The Nigerian naira exchange rate rallied against the US dollar, gaining almost N115 for each greenback traded on the official currency market. The local currency rose because demand pressure was adequately offset by a strong FX liquidity position at the autonomous foreign exchange market.
Last week, the naira witnessed heightened volatility, reaching a high of ₦1,656.49 per US dollar but ending at ₦1,541.52, resulting in a 0.32% gain week on week.
The naira has been volatile since April due to low FX availability and rising FX demand. Weighing the effects of a liquidity shortfall, international investors became cautious, and poor investor confidence prompted price movements across the markets.
The naira has faltered against the US dollar due to an FX liquidity shortage in the official currency market. Efforts to boost liquidity have not significantly impacted the exchange rate, as the imbalance between US dollar demand and supply remains large.
Afrinvest Limited said activity level at the Nigerian autonomous foreign exchange segment declined as turnover for the week dipped by 45.4% week on week to settle at $727.5 billion last week.
The gross balance in Nigeria’s foreign currency reserve climbed to a 2-year high at $37.349 billion seen in Oct. 2022, details from the Central Bank of Nigeria’s (CBN) movement in reserve revealed.
Nigeria’s net FX reserve is underwhelmingly low when considering borrowing from resident domestic banks and other resident counterparties via the forwards markets. But the Nigerian apex bank has initiated a move to make the forward market inactive, according to a note from Afrinvest Capital Limited.
The investment firm stated that there remain no changes, save the maturity of contracts, given that the CBN has now cleared all non-deliverable forwards (NDFs) open contracts. The move came shortly after the CBN rendered contracts for tenants between one and twelve months inactive in response to reforms in the NAFEM window.
The FX rate is expected to range between N1,450 and N1,600 per US dollar at both the official window and the parallel market over the next three months, Coronation Research said in its mid-year economic report.
“We see Naira stability in the near term partly due to CBN’s resumption of the retail Dutch auction system to mitigate FX demand pressure, increased FX injections from FPIs, and improved oil production,” the firm said.
Nigeria still generates about 90% of the country’s export revenues from crude oil and gas exports. Based on the market dynamics, analysts projected gross reserves to cross $40 billion in 2024 after the Federal Government puts revenue from the privatized state oil company’s revenue under the CBN watch.
The market spotted improved FX inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM), underpinned by increases in both local and foreign sources. Last month, total inflows at the official forex market rebounded by 21.4% month on month to US$2.34 billion in August from US$1.92 billion posted in July.
Inflows from local sources increased by 15.5% month on month to US$1.94 billion in August from US$1.68 billion in July, driven by increased collections from individuals (+162.5), exporters (+28.3%), and non-bank corporates (+18.7%) segments despite the weaker inflow from the CBN (-53.7%).
At the same time, inflows from foreign sources increased by 62.1% in August to US$394.50 million from US$243.30 million, although they remained below the H1-2024 average of US$790.57 million, reflecting still weak foreign investor confidence.
